For members of the public, this means that the cost of borrowing will go up, making their loans, mortgages and credit card payments more expensive. The bank’s Monetary Policy Committee (MPC) announced the base rate will be increased from 0.75 percent today. Many experts believed a hike to one percent was likely which will match the borrowing costs to the level in February 2009 following the 2008 financial crisis.
Martijn van der Heijden, CFO at award-winning mortgage broker, lender, and digital home-buying service Habito, explained: “For the quarter of UK homeowners who are on a variable, tracker, or standard variable rate, any vote to rise the base rate will mean they see their repayments go up; on tracker mortgages the change will be immediate and certain, but on a variable rate, it’s up to the lender.”
UK Finance figures from February showed there are around 1.1million people on SVRs, and 850,000 people on tracker rates.
Currently, households across the country are being hit with the rise in the cost of living due to inflation reaching seven percent.
On top of this, wholesale pressures on the gas and electricity market and the war in Ukraine are putting further pressures on families with their energy bills, especially after the increase to the price cap.
Across the pond, the United States’ Federal Reserve made the decision to raise its benchmark interest rate by 0.25 percent yesterday, showing that the current economic turmoil is not just affecting the UK.
The Bank of England’s decision to increase the base rate to one percent is the fourth consecutive hike since the financial institution started raising borrowing costs in December 2020.
While some economists believe a 0.5 percent increase could be on the cards to prevent inflation from skyrocketing, the consensus is that a 0.25 percent rise is more likely.
Concerns are growing over the rate of inflation as it may lead to a recession due to the impact it is having on consumer spending in the UK.
On the Bank of England’s decision, Thomas Pugh, an economist at RSM UK, said: “At the MPC meeting on May 5, we’re expecting a unanimous vote to raise interest rates from 0.75 percent to one percent and for the MPC to announce that it will start selling bonds.
“But given how uncertain the outlook for the economy and inflation is currently, no hike and a 0.5 percent increase are also significant possibilities.
“And the situation isn’t going to get much better for those nearing the end of their current deals.
“They have a choice of facing the more expensive SVR or having to switch to a new, and more expensive fixed-rate product.
“Customers feeling the squeeze from the increased cost of living should consider cutting back on using expensive credit lines such as overdrafts, and move interest-bearing credit card balances to a zero percent offer.
“By reducing the interest being paid, customers can repay their debts quicker, or use the money saved to cover other costs.”